Madison Technologies Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by Madison’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of Madison’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2019. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, Madison’s management concluded, as of the end of the period covered by this report, that Madison’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC rules and forms and that such information was accumulated or communicated to management to allow timely decisions regarding required disclosure. In particular, Madison has identified material weaknesses in internal control over financial reporting, as discussed below. Management’s Report on Internal Controls over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. Madison’s internal control over financial reporting is a process designed under the supervision of Madison’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Madison’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: ● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of Madison’s assets; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Madison’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Madison’s annual or interim financial statements will not be prevented or detected on a timely basis. Madison Technologies Inc. Form 10-K - 2019 Page 30 The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on Madison’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by Madison’s Chief Financial Officer in connection with the audit of its financial statements as of December 31, 2019 and communicated the matters to management. As a result of the material weakness in internal control over financial reporting described above, management has concluded that, as of December 31, 2019, Madison’s internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by COSO. Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on Madison’s financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on Madison’s board of directors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting. Madison is committed to improving its financial organization. As part of this commitment and when funds are available, Madison will create a position to Madison to segregate duties consistent with control objectives and will increase its personnel resources and technical accounting expertise within the accounting function by: (i) appointing one or more outside directors to its board of directors who will also be appointed to the audit committee of Madison resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; and (ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. Management believes that the appointment of one or more outside directors, who will also be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on Madison’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support Madison if personnel turn-over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues Madison may encounter in the future. Management will continue to monitor and evaluate the effectiveness of Madison’s internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. Madison’s independent auditors have not issued an attestation report on management’s assessment of Madison’s internal control over financial reporting. As a result, this annual report does not include an attestation report of Madison’s independent registered public accounting firm regarding internal control over financial reporting. Madison was not required to have, nor has Madison, engaged its independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the temporary rules of the Securities and Exchange Commission that permit Madison to provide only management’s report in this annual report. Changes in Internal Controls There were no changes in Madison’s internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2019, that materially affected, or are reasonably likely to materially affect, Madison’s internal control over financial reporting. Madison Technologies Inc. Form 10-K - 2019 Page 31 Item 9B. Other Information As of the date of this report Madison is not current with the required payment schedule per its agreement with Tuffy Packs LLC. As a result of the arrears payments, Madison is no longer the exclusive distributor of the Tuffy Packs product line in The UK and Western Europe. PART III Item 10. Directors, Executive Officers, and Corporate Governance. (a) Identify Directors and Executive Officers Each director of Madison holds office until (i) the next annual meeting of the stockholders, (ii) his successor has been elected and qualified, or (iii) the director resigns. Madison’s management team is listed below. Officer’s Name Madison Technologies Inc. Joseph Gallo Director and President, CEO, CFO, Treasurer, Corporate Secretary Joseph Gallo Mr. Gallo (61 years old) has been a director and the president of Madison since June 2007 and the CFO, treasurer, and corporate secretary of Madison since September 2011. Mr. Gallo developed his managerial skills while moving up the store managerial ranks with Canada Safeway, Ltd., starting as a clerk in 1977, through service as a Team Leader and becoming an Assistant Store Manager and Store Closer, a position which he held until his resignation in 2006. Since 2006, he has devoted his time to developing his residential construction and rehabilitation business (d/b/a “Solid Construction”) that he founded and has run since 1992. In 1986, Mr. Gallo founded JovicPlasticfacture, to which he assigned the patent for the bicycle brake light that he had invented that incorporated microprocessor technology (“speed indicating light mechanism”). The product was voted the most innovative product of the year by the Vancouver Design Group, was awarded two governmental grants, and the company commercialized the product until 1991. Mr. Gallo’s past experience includes the staking of mineral exploration properties for companies such as US Diamonds Corporation and Atlas Corporation. (b) Identify Significant Employees Madison has no significant employees other than the sole director and officer of Madison. (c) Family Relationships There are no family relationships among the directors, executive officers or persons nominated or chosen by Madison to become directors or executive officers. (d) Involvement in Certain Legal Proceedings (1) No bankruptcy petition has been filed by or against any business of which any director was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. (2) No director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences). (3) No director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. (4) No director has been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated. (e) Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the Security Exchange Act of 1934 requires directors, executive officers and 10% or greater shareholders of Madison to file with the Securities and Exchange Commission initial reports of ownership (Form 3) and reports of changes in ownership of equity securities of the Company (Form 4 and Form 5) and to provide copies of all such Forms as filed to Madison. Based solely on Madison’s review of the copies of these forms received by it or representations from certain reporting persons, management believes that SEC beneficial ownership reporting requirements for fiscal 2019 were met. Madison Technologies Inc. Form 10-K - 2019 Page 32 (f) Nomination Procedure for Directors Madison does not have a standing nominating committee; recommendations for candidates to stand for election as directors are made by the board of directors. Madison has not adopted a policy that permits shareholders to recommend candidates for election as directors or a process for shareholders to send communications to the board of directors. (g) Audit Committee Financial Expert Madison has no financial expert. Management believes the cost related to retaining a financial expert at this time is prohibitive. Madison’s Board of Directors has determined that it does not presently need an audit committee financial expert on the Board of Directors to carry out the duties of the Audit Committee. Madison’s Board of Directors has determined that the cost of hiring a financial expert to act as a director of Madison and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee. (h) Identification of Audit Committee Madison does not have a separately-designated standing audit committee. Rather, Madison’s entire board of directors performs the required functions of an audit committee. Currently, Joseph Gallo is the only member of Madison’s audit committee, but he does not meet Madison’s independent requirements for an audit committee member. See “Item 12. (c) Director independence” below for more information on independence. Madison’s audit committee is responsible for: (1) selection and oversight of Madison’s independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by Madison’s employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditor and any outside advisors engaged by the audit committee. As of December 31, 2019, Madison did not have a written audit committee charter or similar document. (i) Code of Ethics Madison has adopted a financial code of ethics that applies to all its executive officers and employees, including its CEO and CFO. See Exhibit 14 – Code of Ethics for more information. Madison undertakes to provide any person with a copy of its financial code of ethics free of charge. Please contact Madison at 206-203-0474 to request a copy of Madison’s financial code of ethics. Management believes Madison’s financial code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. Madison Technologies Inc. Form 10-K - 2019 Page 33 Item 11. Executive Compensation. Madison has paid no compensation to its named executive officers during its fiscal year ended December 31, 2016. summary compensation table Name and principal position (a) Year (b) Salary ($) (c) Bonus ($) (d) Stock Awards ($) (e) Option Awards ($) (f) Non-Equity Incentive Plan ($) (g) Non-qualified Deferred Compensation Earnings ($) (h) All other compensation ($) (i) Total ($) (j) Joseph Gallo 2019 nil nil nil nil nil nil nil nil President 2018 nil nil nil nil nil nil nil nil Mar 2018 – present 2016 nil nil nil nil nil nil nil nil President June 2007 – Sep 2014 Secretary/Treasurer Sep 2011 – Sep 2014 President Jan 2015 – Sep 2016 Secretary/Treasurer Jan 2015 – Sep 2016 Thomas Brady 2018 nil nil nil nil nil nil nil nil President 2017 n/a n/a n/a n/a n/a n/a n/a n/a Sep 2016 – Mar 2018 2016 n/a n/a n/a n/a n/a n/a n/a n/a Since Madison’s inception, no stock options, stock appreciation rights, or long-term incentive plans have been granted, exercised or repriced. Currently, there are no arrangements between Madison and any of its directors whereby such directors are compensated for any services provided as directors. There are no employment agreements between Madison and any named executive officer, and there are no employment agreements or other compensating plans or arrangements with regard to any named executive officer which provide for specific compensation in the event of resignation, retirement, other termination of employment or from a change of control of Madison or from a change in a named executive officer’s responsibilities following a change in control. Madison Technologies Inc. Form 10-K - 2019 Page 34 Item 12. Security Ownership of Certain Beneficial Holders and Management and Related Stockholder Matters. (a) Security Ownership of Certain Beneficial Owners (more than 5%) (1) Title of Class (2) Name and Address of Beneficial Owner (3) Amount and Nature of Beneficial Owner [1] (4) Percent of Class [2] Joseph Gallo 4448 Patterdale Street North Vancouver, British Columbia Common Stock V7R 4L8 Canada 6,177,000 34.2 % Common Stock Edward Johnson #146 – 2998 Robson Drive, Coquitlam, British Columbia V3E 2X6 Canada 1,117,553 6.18% [1] The listed beneficial owner has no right to acquire any shares within 60 days of the date of this Form 10-K from options, warrants, rights, conversion privileges or similar obligations excepted as otherwise noted. [2] Based on 18,057,565 shares of Common Stock issued and outstanding as of March 30, 2019. (b) Security Ownership of Management (1) Title of Class (2) Name and Address of Beneficial Owner (3) Amount and Nature of Beneficial Owner (4) Percent of Class [1] Joseph Gallo 4448 Patterdale Street North Vancouver, British Columbia Common Stock V7R 4L8 Canada 6,177,000 34.2 % Directors and Common Stock Executive Officers (as a group) 6,177,000 34.2 % [1] Based on 18,057,565 shares of Common Stock issued and outstanding as of March 30, 2019. (c) Changes in Control Management is not aware of any arrangement that may result in a change in control of Madison, with the exception that on July 3, 2018, Joseph Gallo and the estate of Thomas Brady entered into a share purchase agreement for the purchase and sale of 3,088,500 shares in the capital of Madison for the purchase price of $3,000.00. For more details, see Exhibit 10.1 – Share Purchase Agreement. As a result of the purchase and sale of the 3,088,500 shares, there was a change in control in the voting shares of Madison. Joseph Gallo is now the beneficial owner of 34.2% of the issued and outstanding shares of common stock in the capital of Madison and Mr. Brady owns no shares of common stock in the capital of Madison. Madison Technologies Inc. Form 10-K - 2019 Page 35 Prior to the purchase and sale of shares, no shareholder beneficially owned 5% or more of the issued and outstanding shares of common stock, with the exception of Mr. Brady, who owned 18.4% of the issued and outstanding shares of common stock in the capital of Madison and Mr. Joseph Gallo, who owned 18.4% of the issued and outstanding shares of common stock in the capital of Madison. For more details, see Exhibit 10.1 – Share Purchase Agreement filed as an Exhibit to Madison’s current report on Form 8-K filed July 9, 2018. As a result of the purchase and sale of the 3,088,500 shares, there was a change in control in the voting shares of Madison. Joseph Gallo, is now the beneficial owner of 34.2% of the issued and outstanding shares of common stock in the capital of Madison. Item 13. Certain Relationships and Related Transactions, and Director Independence. (a) Transactions with Related Persons Since the beginning of Madison’s last fiscal year, no director, executive officer, security holder, or any immediate family of such director, executive officer, or security holder has had any direct or indirect material interest in any transaction or currently proposed transaction, which Madison was or is to be a participant, that exceeded the lesser of (1) $120,000 or (2) one percent of the average of Madison’s total assets at year-end for the last three completed fiscal years. (b) Promoters and control persons From July 2004 until June 2007, Kevin Stunder and Joel Haskins were promoters of Madison’s business. From June 2007 until July 2011, Joseph Gallo and Steven Cozine were promoters of Madison’s business. From July 2011 until September 2014 Joseph Gallo was the promoter of Madison’s business. From September 2014 until November 2014 Brent Inzer was the promoter of Madison’s business. From November 2014 until Jan 2015 Mr. Frank McEnulty was the promoter of Madison’s business. From January 2015 until September 2016 Mr. Joseph Gallo was the promoter of Madison’s business. From September 2016 until March 2018 Mr. Thomas Brady was the promoter of Madison’s business. Since March 3, 2018 until present Joseph Gallo has been the promoter of Madison’s business, none of these promoters have received anything of value from Madison nor is any person entitled to receive anything of value from Madison for services provided as a promoter of the business of Madison. Madison Technologies Inc. Form 10-K - 2019 Page 36 (c) Director independence Madison’s board of directors currently consists of Joseph Gallo. Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, Madison’s board of directors has adopted the definition of “independent director” as set forth in Rule 4200(a)(15) of the NASDAQ Manual. In summary, an “independent director” means a person other than an executive officer or employee of Madison or any other individual having a relationship which, in the opinion of Madison’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director who accepted any compensation from Madison in excess of $200,000 during any period of 12 consecutive months with the three past fiscal years. Also, the ownership of Madison’s stock will not preclude a director from being independent. In applying this definition, Madison’s board of directors has determined that Mr. Gallo does not qualify as an “independent director” pursuant to Rule 4200(a)(15) of the NASDAQ Manual. As of the date of the report, Madison did not maintain a separately designated compensation or nominating committee. Madison has also adopted this definition for the independence of the members of its audit committee. Joseph Gallo serves on Madison’s audit committee. Madison’s board of directors has determined that Mr. Gallo is not “independent” for purposes of Rule 4200(a)(15) of the NASDAQ Manual, applicable to audit, compensation and nominating committee members, and is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act. Item 14. Principal Accounting Fees and Services (1) Audit Fees The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for Madison’s audit of annual financial statements and for review of financial statements included in Madison’s Form 10-Q’s or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was: 2019 - $8,900 – K. R. Margetson Ltd. – Chartered Professional Accountant 2018 - $8,900 – K. R. Margetson Ltd. – Chartered Professional Accountant (2) Audit-Related Fees The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of Madison’s financial statements and are not reported in the preceding paragraph: 2019 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant 2018 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant (3) Tax Fees The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was: 2019 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant 2018 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant (4) All Other Fees The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was: 2019 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant 2018 - $nil – K. R. Margetson Ltd. – Chartered Professional Accountant (6) The percentage of hours expended on the principal accountant’s engagement to audit Madison’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was nil %. Madison Technologies Inc. Form 10-K - 2019 Page 37 Item 15. Exhibits, Financial Statement Schedules. 1. Financial Statements Consolidated financial statements of Madison Technologies Inc. have been included in Item 8 above. 2. Financial Statement Schedules All schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15. 3. Exhibits All Exhibits required to be filed with the Form 10-K are included in this annual report or incorporated by reference to Madison’s previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 000-51302. Exhibit Description Status 3.1 Articles of Incorporation and Certificate of Amendment, filed as an exhibit to Madison’s registration statement on Form 10-SB filed on May 4, 2005, and incorporated herein by reference. Filed 3.2 By-Laws, filed as an exhibit to Madison’s registration statement on Form 10-SB filed on May 4, 2005, and incorporated herein by reference. Filed 3.3 Certificate of Amendment dated March 9, 2015, filed as an Exhibit to Madison’s current report on Form 8-K filed March 11, 2015, and incorporated herein by reference Filed 10.1 Share Purchase Agreement dated July 3, 2018 between Thomas Brady and Joseph Gallo, filed as an Exhibit to Madison’s current report on Form 8-K filed July 9, 2018. Filed 10.5 Product License Agreement dated September 16, 2016 between Tuffy Packs, LLC and Madison Technologies Inc., filed as an exhibit to Madison’s Form 8-K (Current Report) filed on September 19, 2016, and incorporated herein by reference. Filed 14 Code of Ethics, filed as an exhibit to Madison’s 2010 annual report on Form 10-K filed on March 31, 2010, and incorporated herein by reference. Filed 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Included 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Included Madison Technologies Inc. Form 10-K - 2019 Page 38 Signatures In accordance with the requirements of the Securities Exchange Act of 1934, Madison Technologies Inc. has caused this report to be signed on its behalf by the undersigned duly authorized person. Madison Technologies Inc. By: /s/ Joseph Gallo Name: Joseph Gallo Title : Director and President Dated: April 14, 2020 Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of Madison Technologies Inc. and in the capacities and on the dates indicated have signed this report below. Signature Title Date President, Chief Executive Officer, Principal Executive Officer, Treasurer, Corporate Secretary, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer /s/ Joseph Gallo Member of the Board of Directors April 14, 2020 Joseph Gallo